As a Forbes columnist and author of six investment books, Rick Ferri is a leading expert on low-cost index fund investing. He is also the founder of Portfolio Solutions, one of the country’s most successful low-fee investment management firms.

You Just Can’t Change Some People

I was having a cup of coffee at the local java shop and overheard a guy talking with his friend about investing. It went something like this, “Just about the time I started making money, the system screwed me.”

Wow! This is too good to mind my own business. I leaned in a little closer…

“Take tech stocks in the 1990s. It was a total conspiracy. Wall Street rigged the game. You remember all the tech stock pumping and dumping that went on? The Wall Street analysts were putting on a show for their banking co-conspirators while at the same time sending emails around saying what junk the stuff was. I was maxed out on margin when they pulled the rug on me.”

Ouch! He went on…

“I kept getting margin calls and had to sell just when I should be buying more. My broker was a jerk. He made a fortune on commissions and said he couldn’t do anything to help me during the collapse. I fired him and took what little money I had left.”

Wait, it gets better…

“Then I decided to invest in real estate so I could touch what I owned. Single-family homes kept going up and up and up. I bought three single-family homes in Florida. They were really nice.”

They were really nice? Oh, this is going to turn out bad…

“The finance company gave me a low interest rate because I put 30% down and did a balloon mortgage. The broker said I’d never see the balloon because I could refinance before the rate increase took effect. He also said I would be able to recoup the 30% down payment during a refinancing, using a cash-out option, because those houses were sure to continue appreciating at 15% per year. That was in 2005.”

And guess what happened next…

“By 2009, I was so deep underwater that I turned those houses over to the bank. Yeah, I lost my down payment plus the money I put into the houses. Those crooked bankers! They should all be in jail. The entire financial system is rigged against the little guy. It’s such a rip-off.”

It couldn’t get any worse for this guy. Or could it?

“Screw it. In 2011, I converted all my money into gold. It’s obvious the global financial system is a train wreck. Central banks are printing money like confetti, government budget deficits are out of control, there is political gridlock, Europe is a mess, and who knows what Japan is doing with their currency. It’s a race to the bottom, and the only asset that is going to be worth anything is gold.”

And here it comes…

“I paid $1,820 per ounce. OK, that was high, I know, but the Fed is killing me. Their manipulation of interest rates to stimulate the economy is pushing unemployment lower, pumping up stock prices, and artificially forcing up consumer confidence. That’s slamming gold prices down. They should abolish the Fed. They’re a bunch of idiots!”

I just couldn’t take it anymore. I leaned over and said, “Excuse me. I couldn’t help overhearing your conversation. Have you ever considered index funds? You would have done really well since 1999 if you owned a diversified portfolio of low-cost stock and bond index funds and held onto them.”

And what was his response?

“Index funds are for people who don’t know anything about investing, but thanks for the suggestion.”

Turning to his friend, “Can you believe the huge bond bubble we’re in? Even Warren Buffet is avoiding bonds. I hear there are these triple-leveraged Treasury bonds that short the market…”